Question 1

Counsell is a simple trust that correctly uses the calendar year for tax purposes.Its income beneficiaries (Kathie,Lynn,Mark,and Norelle) are entitled to the trust's annual accounting income in shares of one-fourth each.For the current calendar year,the trust incurs ordinary business income of $40,000,a long-term capital gain of $20,000 (allocable to corpus),and a trustee commission expense of $4,000 (allocable to corpus).Use the format of Exhibit 20.5 in the text to address the following items.
a.How much income is each beneficiary entitled to receive?
b.What is the trust's DNI?
c.What is the trust's taxable income?
d.How much is taxed to each of the beneficiaries?

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Question 2

The Circle Trust reports some exempt interest income for the year.How does this investment income affect Circle's deduction of its fiduciary fees? Charitable contributions?

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Question 3

List at least three non-tax reasons that you might suggest to your client Connie that she should consider shifting some income and assets to a trust.

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Question 4

Consider the term distributable net income as it is used with respect to the Federal income taxation of trusts and estates.How is this amount computed? Where is it used in computing the parties' taxable incomes?

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Question 5

The Gibson Estate is responsible for collecting outstanding income amounts and paying the remaining obligations of Juanita Gibson,the deceased.How does Federal income tax law treat these items? Hint: Define and use the term income in respect of a decedent in your answer.

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Question 6

The Gomez Trust is required to distribute $80,000 annually,split equally between its two income beneficiaries,Lara and Byron.If trust income is not sufficient to pay these amounts,the trustee can invade corpus to the extent necessary.During the current year,the trust reports DNI of $60,000.Byron receives an additional $30,000 discretionary corpus distribution.
a.How much of the $40,000 distributed to Lara is included in her gross income?
b.How much of the $70,000 distributed to Byron is included in his gross income?
c.How much of these distributions are first-tier distributions or second-tier distributions?

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Question 7

Consider the term fiduciary accounting income as it is used with respect to the Federal income taxation of trusts and estates.How is this amount computed? Where is it used in computing the parties' taxable incomes?

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Question 8

Summarize the Federal income tax rules that apply to a trust or estate concerning the alternative minimum tax.Include comments about the applicable tax rates,and any personal exemption.

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Question 9

The DaSinzi Estate has two equal income beneficiaries (Rollo and Luisa) and one remainder beneficiary (Coco).The estate operates a business and generates cost recovery deductions.Which taxpayer(s),if any,can deduct these items,
e.g., the deceased, the estate, Rollo, Luisa, or Coco?

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Question 10

Olsen has been determined to be a grantor trust by the IRS.What are the tax consequences of this tax status? What are the tax return filing requirements for Olsen and for Peggy,the donor of the trust's assets?

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Question 11

Counsell is a simple trust that correctly uses the calendar year for tax purposes.Its income beneficiaries (Kathie,Lynn,Mark,and Norelle) are entitled to the trust's annual accounting income in shares of one-fourth each.For the current calendar year,the trust incurs ordinary business income of $40,000,a long-term capital gain of $20,000 (allocable to income),and a trustee commission expense of $4,000 (allocable to corpus).Use the format of Exhibit 20.5 in the text to address the following items.
a.How much income is each beneficiary entitled to receive?
b.What is the trust's DNI?
c.What is the trust's taxable income?
d.How much is taxed to each of the beneficiaries?

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Question 12

Your client Pryce is one of the income beneficiaries of the Santiago Trust.Pryce says to you,"I want all of the exempt interest income from Santiago to be allocated to me,as I am the income beneficiary who is subject to the highest marginal Federal income tax rate." How do you respond to Pryce's request?

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Question 13

Tax professionals use the terms simple trust and complex trust when dealing with fiduciary arrangements.How does one know whether a trust is "simple" or "complex?" When is this determination made?

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Question 14

The Yeoman Trust has generated several Federal income tax credits for this tax year.Which taxpayer(s),if any,can use these credits in computing a Federal income tax liability,
e.g., the grantor, the trust, its income beneficiaries, its remainder beneficiaries? Answer for estates, simple trusts, and complex trusts.

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Question 15

Identify the parties that are present when an estate is created,and their key duties.Then do the same for a trust.

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Question 16

The Moot Trust distributes an asset to its income beneficiary that shows a realized gain.What are the Federal income tax consequences of the distribution? What if the asset shows a realized loss?

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Question 17

List and discuss the three major functions of distributable net income (DNI) as that amount is used under Federal income tax law.

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Question 18

The Federal income taxation of a trust or estate has been described as a "modified pass-through" system.Compare fiduciary income tax rules to those that apply to LLCs and to individuals.

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Question 19

Does the estate or trust's distributable net income always equal its deduction for distributions to beneficiaries? Are the two amounts ever equal in amount? Answer for estates,simple trusts,and complex trusts.

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Question 20

The Raja Trust operates a welding business.Its current-year cost recovery deductions properly amount to $75,000.Raja's accounting income was $100,000,of which $40,000 was distributed to first-tier beneficiary Chuck,$25,000 was distributed to second-tier beneficiary Ruby,and $35,000 was accumulated by the trustee.Ruby also received a $25,000 discretionary corpus distribution.Raja's DNI was $80,000.Identify the treatment of Raja's cost recovery deductions.

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Quiz 28: Income Taxation of Trusts and Estates